| name | effective-labor-rate-and-gross-profit |
| description | Read a repair shop's two profit engines separately: labor GP (effective labor rate x billed hours minus tech cost) and parts GP (the matrix over cost). Measure effective labor rate as posted rate minus discounts, warranty, comebacks, and unapplied time. Benchmarks verify-at-use; no PII. |
Effective Labor Rate & Gross Profit
The single most misread number in a repair shop is the labor rate. The posted door rate is a sign on the wall; the effective labor rate (ELR) is what the shop actually collects per billed hour after everything that erodes it. Profit is read on the ELR, never the door rate.
Advisory, operations/financial decision-support. Rate norms, GP targets, and matrix figures are volatile and market-specific — every specific here is [verify-at-use] against the shop's own numbers. No customer PII.
The two engines (read each on its own)
| Engine | Formula (concept) | Where it leaks |
|---|
| Labor GP | (effective labor rate x billed hours) − technician labor cost | Discounting, warranty labor at a lower rate, comeback (rework) hours billed at zero, unapplied/idle time |
| Parts GP | parts sale (matrix over cost) − parts cost | A flat markup instead of a tiered matrix; matrix set by the vendor, not the shop |
The rule: a shop can be strong on one engine and bleeding on the other. Never blend labor and parts into one "gross profit" number — diagnose them separately.
Computing the effective labor rate
Start from the door rate and subtract every source of erosion:
- Discounts — coupons, fleet/wholesale, senior, "take-care-of-'em" adjustments.
- Warranty labor — often reimbursed below door rate.
- Comeback labor — rework billed at zero but paid to the tech and consuming a bay.
- Unapplied time — clocked hours that never make it onto an RO.
ELR = total labor dollars collected ÷ total billed hours. The gap between door rate and ELR is recoverable margin you're already entitled to — close it before raising the posted rate.
Metrics
| Metric | Reads | Note |
|---|
| Effective labor rate | labor $ collected / billed hours | The real price; the number to defend |
| ELR-to-door-rate gap | door rate − ELR | The recoverable-margin opportunity |
| Labor gross profit % | labor GP / labor sales | Read against the shop's own trend [verify-at-use] |
| Parts gross profit % | parts GP / parts sales | Set by the matrix, not the vendor [verify-at-use] |
Anti-patterns
- Reading profitability off the door rate while the ELR quietly erodes.
- Raising the posted rate to fix a discount/comeback/unapplied-time problem.
- Blending labor and parts GP so a strong parts margin hides weak labor margin (or vice versa).
See also
